Best Metal Bond Gets Even Better as Cliffs Cashes in on Rally

  • Iron miner battered in bond market last year is 2016 top bet
  • Forecasts steady U.S. steel prices for remainder of year

Cliffs Natural Resources Inc.’s borrowing costs fell to the lowest in almost two years as it capitalizes on the best stock rally among iron miners to raise money and declared itself out of the woods after a price rout.

The Cleveland-based company’s notes due 2018 rallied Thursday, pushing down its yield to 8.7 percent at 12:31 p.m. in New York. That represents the smallest gap with average material company yields tracked by Bloomberg since November 2014.

Cliffs registered to sell $300 million in new shares, partly for debt repayment, it said in a statement Thursday. A day earlier, Lourenco Goncalves said the most critical threats he assumed when he took over as chief executive officer via an activist campaign in 2014 had been neutralized.

“We have removed all of the death threats,” Goncalves, 58, said in an interview in New York, referring to the sale of the Bloom Lake mine in Canada, renewal of a supply contract with ArcelorMittal and the failure of Essar Steel Algoma to undertake its own competing North American iron expansion. “I positioned Cliffs to be successful in an environment that’s not so strong.”

Steel prices have rallied this year, lifting the fortunes of Cliffs, which provides the principal raw material in the metal’s production. Hot-rolled steel coil, the benchmark product, has climbed 64 percent this year as demand improves while trade cases and the threat of tariffs have limited imports. The domestic steel price probably will stay around current levels for the remainder of the year, Goncalves said.

Goncalves began his term as CEO by replacing most board members and promising to divest assets not directly related to Cliffs’ U.S. iron-ore operations. He has sold U.S. coal mines, put Canadian mines into court-supervised reorganization and attempted to sell Australian assets.

Cliffs’ bonds have returned 86 percent this year, the best performance among more than 300 notes issued by mining and metal companies globally, according to data compiled by Bloomberg. Last year, the company’s notes lost 36 percent, about three times the average loss by metal producer debt, the data show.

The stock market tells a similar story, with Cliffs surging 201 percent this year to lead the BI Global Iron Ore Mining Valuation Peers index after slumping 78 percent last year. The shares fell as much as 7.1 percent on Thursday.

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